Social Security: A constantly moving target

Dennis Miller is the author of “Retirement Reboot," a book chronicling his
own journey to save his retirement in a low yield, turbulent investing
environment. He works with some of the country’s top investment managers,
authors and analysts to tackle the financial challenges faced by today’s
retirees. Prior to retiring in 2008 Dennis ran a successful consulting business
and authored several books on sales management. He was also a regular
contributor to the American Management Association and an active international
lecturer for 40 years. Dennis is featured regularly on several retirement blogs
and is a frequent guest on radio shows throughout the country. You can track his
exploits at Miller on the Money and on Twitter @DMonthemoney,
or contact him at
milleronthemoney@gmail.com.

My wife, Jo, started receiving Social Security as soon as she could. When she wondered aloud how much larger her checks would have been if she'd waited, I said, “It makes no difference! You are already four years ahead of the game.“

When we applied at the local office, the agent kept reminding her of the big raise she would get if she waited until full retirement age, or better yet until she was 70. Stop with the hard sell; she wanted it at 62, period!

Why did she take it early? To illustrate, I did a little investigating on the Social Security Administration's website and used its retirement planner.

First, a person born on January 1, 1951 could begin receiving benefits in January 2013, at age 62.

What if you are 62 years old and still working? The website makes it clear: “If you are younger than full retirement age during all of 2013, we must deduct $1 from all your benefits for each $2 you earned above $15,120.“ If you are working full time, that's a good incentive to hold off. If you are not employed, as was the case for my wife, keep investigating.

I suppose there are some fancy calculations I could do, but I prefer the common-sense method. To make the example simple, let's assume that Jo's check would be $1,000 at full retirement age. If she chose to start receiving benefits now, it would be $754.20. Over the 47 months between now and her full retirement age, Jo will receive $35,447.40.

Next, let's subtract $754.20 from $1,000—her payment if she waits until age 66. The answer: $245.80; that's how much her payment is reduced if she takes it at age 62.

Now here's the fun part. Divide $35,447.40 by $245.80 per month and you get 144.21 months. That means it would take a little over 144 months, or 12 years before she has made a bad deal. Now I suppose there are some math majors or clever folks who can factor in inflation and other variables; they might tell us that the true break-even point is even further down the road.

If you were born between 1943 and 1954, your full retirement age is 66. Add 12 years to that and you will be 78. If you die before then, you would have been better off taking your money earlier. If you live much longer, then maybe you should have waited. Whatever your decision, you should know what you're getting into and understand the risks and potential rewards.

With that said, there's more to it than math. Here are the real questions we should ask before signing up to receive Social Security:

Is there any possibility I might work and make over $15,120, thereby reducing my benefit?

Does my family have a history of longevity?

Congress is always making a lot of noise about how Social Security is bankrupt and something must be done about it. Might they reduce my benefits before I die?

If I don't need the money to live on now, can I invest the checks and earn enough money to push the break-even point beyond my 78th birthday?

Have I checked the provisions regarding death of a spouse? The website states that the surviving spouse is eligible to receive the highest amount either spouse would be eligible for, but not both.

Do I trust Congress to keep its promises?

How is my health?

Basically, you can take the money early and hope you live to realize your mistake somewhere around your 78th birthday. It's money you can choose to spend or invest, knowing that you're ahead of the game for at least 12 years.

Do I trust government promises about Social Security? Every year Social Security recipients get a cost of living adjustment. The last three years we have received 0%, 0%, and 1.7% respectively. I doubt that many readers would take issue with the notion that the government is not holding up its end of the bargain here.

After showing the numbers to my wife, she marked her calendar to bring the subject up again on her 78th birthday. Until then, those checks will be earning interest in our brokerage account.

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